ASIC flags shortfall in Centro accounts

Centro Properties Group
’s 2007 annual report would have shown a net current asset deficiency of $1.93 billion if it had included mis-classified short- term debt.

Investors would also have been able to see the financial ramifications of the guarantees it had given to cover a $2.6 billion bridge facility in Centro’s accounts.

The claims about Centro’s 2007 financial statements are included in a series of expert reports commissioned by the corporate regulator as part of its case against eight current and former directors and executives.

The Australian Securities and Investments Commission is alleging the eight men, including current chairman
Paul Cooper
, failed in their duties because they approved financial statements that wrongly classified about $2 billion in short-term debt.

A second set of allegations relates to Centro’s failure to disclose the guarantees it gave to cover short-term debt on its acquisition of the giant US-based portfolio called New Plan.

Valuations expert Wayne Lonergan assessed the impact of those omissions in his reports, the Federal Court heard yesterday.

Had Centro included the wrongly classified short-term debt, its September 2007 annual report would have shown its current assets could meet only 41 per cent of its current financial obligations, according to Mr Lonergan’s report.

“It is normal commercial practice for current assets to exceed current liabilities," Mr Lonergan said in the report.

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Mr Lonergan also defended his assessment of the potential impact of the guarantees which were not disclosed at the time.

“It was extremely serious for someone who was massively dependent on huge amounts of short-term debt," he told the court.

The case is expected to run for several more weeks. So far, the court has heard conflicting testimony from Centro’s former auditors at PwC and from Centro staff over whether the directors were adequately warned about the short-term debt problem.

Centro and its former auditors are also embroiled in shareholder class actions to be heard later this year.